The importance of the regimental system to the British Army and its contribution to the fighting spirit that delivers a battle-winning edge is very clear. I understand the dismay, felt particularly by former members, at the withdrawal of units that may have illustrious histories and antecedents. I understand, too, the attachments of

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the regions and nations of the United Kingdom to specific units within the British Army, and their justifiable pride in those units. In designing the new structure, the Army has sought to be sensitive to those issues.

But I am also very clear that the Army that emerges from the process must be a forward-looking, modern fighting machine, remaining best of its class—respecting the past and honouring its proud history, but looking resolutely to the future, with its principal focus being the brave men and women currently serving and the units in which they serve. The Army has approached this task methodically, carefully redesigning the way it delivers force support and building up a “whole force” concept that gives effect not only to the integration of the reserves but to the greater use of contractors, sometimes using sponsored reserves, to support operations, maximising the combat effect of the regular manpower available.

I should emphasise to the House that the withdrawal or merger of units is completely separate from the redundancy process. An individual in a unit which is withdrawn or merged is no more or less likely than any other individual with similar skills and service record to be selected for future redundancy. When units are withdrawn, their personnel are reassigned to other units, where possible within the same regiment. Nor does anything that I shall announce today prejudice the basing review that is looking at the optimum future basing pattern for our armed forces units around the United Kingdom.

I will list the changes to individual units. Starting with the force troops, 39 Regiment Royal Artillery, 24 Commando Engineer Regiment, 28 Engineer Regiment and 67 Works Group will be withdrawn. In the Army Air Corps, 1 Regiment and 9 Regiment will merge in preparation for equipping with the new Wildcat helicopters. In the Royal Logistics Corps, 1 and 2 Logistics Support Regiments will be withdrawn and 23 Pioneer Regiment disbanded, with its functions assumed by other units. In addition, 101 Force Support Battalion REME and 5 Regiment Royal Military Police will be withdrawn, with 101 becoming a reserve unit.

Army 2020 calls for a greater focus on mobility and the ability to mount expeditionary warfare based around the air assault and armoured infantry brigades of the reaction forces. This evolution of our posture still further away from the cold war lay-down inevitably means a reduction in the size of the Armoured Corps from 11 units to nine. After careful consideration of all the factors, including regional distribution and the requirement for a balance of capability, the Army has decided that this will be achieved by an amalgamation of the Queen’s Royal Lancers with the 9th/12th Royal Lancers and a merger between the 1st and 2nd Royal Tank Regiments.

Turning to the infantry, I can confirm that no current regimental names or cap badges will be lost as a consequence of the changes that I am announcing today. Five infantry battalions will be withdrawn from the Army’s order of battle, all of them from multi-battalion regiments. In selecting battalions for withdrawal, the Army has focused on the major recruiting challenges it faces in the infantry. It has looked carefully at recruiting performance, not just at a point in time but over the last decade; at recruiting catchment areas; and at demographic projections for the age cohort from which infantry recruits are drawn. It has also considered regional and

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national affiliations, the merger and disbandment history of individual battalions, and existing commitments of battalions to future operations. The overriding objective has been to arrive at a solution that those currently serving in the Army will see as fair and equitable.

The conclusion of this process has been that 2nd Battalion the Royal Regiment of Fusiliers, 2nd Battalion the Yorkshire Regiment, 3rd Battalion the Mercian Regiment and 2nd Battalion the Royal Welsh will be withdrawn from the order of battle. In addition, the Royal Regiment of Scotland will see one battalion reduced to a single company. Ministers have agreed with the Chief of the General Staff that in order to raise the profile of the Royal Regiment of Scotland, and of the Army, in Scotland, a public duties company will be created, returning sentries to Edinburgh castle and the palace of Holyroodhouse on a permanent basis for the first time in years. Accordingly, the Argyll and Sutherland Highlanders, 5th Battalion the Royal Regiment of Scotland, will be re-roled as a public duties company.

These withdrawals and mergers, unwelcome as I know they will be in the units affected, are fair and balanced and have been carefully structured to minimise the impact of the regular manpower reduction and maximise the military effectiveness of the Army. The reduction in regular forces will be offset by the enhanced role of the reserves and the “whole force” concept, which optimises the use of contractors in both peacetime and on operations.

The Chief of the General Staff and his team assess that this configuration will mean that Army 2020 can deliver the level of capability agreed in the strategic defence and security review. That is an excellent outcome given the appalling state of our inheritance at the Ministry of Defence, and I am extremely grateful to the Chief of the General Staff and the senior leadership of the Army for the constructive and intelligent way in which they have managed this process. What I have announced today, while difficult and challenging for those directly affected, represents a vision for the future—a vision of a balanced, capable and adaptable British Army that will remain best in class.

The British Army has seen several transformations since the end of world war two—from wartime structure to cold war, from conscription to professional force, and the downsizing at the end of the cold war in “Options for Change” and “Front Line First”—and now it is embarking on another. The values of the Army have endured through previous transformations; they have sustained it through a decade of continuous campaigns. Those same values—courage, discipline, respect, integrity, loyalty, selflessness—will sustain it through this transformation; and, no doubt, through many further iterations in the decades and centuries ahead as this most enduring of British institutions looks confidently to a future in which it continues to adapt to an ever-changing world. I commend this statement to the House.

12.36 pm

Mr Jim Murphy (East Renfrewshire) (Lab):
I thank the Secretary of State for his statement and the courtesy of a briefing this morning in his office.

I join the Secretary of State in paying tribute to Flight Lieutenant Hywel Poole, Squadron Leader Samuel Bailey and Flight Lieutenant Adam Sanders. As he rightly says, our thoughts and prayers are with their families.

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Today’s statement is, correctly, long on detail but totally short of strategic context. New threats are emerging and weak and failing states outnumber the strong by two to one. There is an arc of instability from west African states to central and south-east Asia. Non-state actors are on the rise, and climate and population change are new sources of tension. The United States is pivoting towards the Pacific while the European end of NATO will take greater strain. In that context, a statement that delivers plans for the smallest Army since the Boer war is an entirely inadequate response.

We can judge a statement not only by what is said but when it is said. This statement has been delayed deliberately to spare the Prime Minister’s blushes during Armed Forces day. He sought the reflected glory of the heroes while preparing to cut the prestige that they embody. This process has been chaotic, and the Prime Minister’s behaviour has been cynical and should never be repeated.

The British Army is an institution that is central to our national security as well as our national identity. The UK is cutting a higher proportion of our Army than many major allies. Indeed, France and Germany have higher net debt than the UK and yet they are cutting their forces by less. The SDSR announced cuts of 7,000 to the Army and new defence planning assumptions which stated that the UK could carry out one major and two lesser operations. Now, with a cut of 20,000, it is inconceivable that there will not be an impact on force projection, especially in the light of cuts to combat support and key enablers. I believe in the deterrent effect of the British Army and its ability to deploy, but for that to be effective, we need both flexibility and sustainability. The plans announced today may provide flexible forces, but it is far from certain that they will provide sustainable military utility.

Deployments in Iraq and Afghanistan have rightly been controversial, and all of us, in all parts of the Chamber, are learning the lessons of those conflicts. However, it is one thing to take a decision never again in future to become involved in large-scale counter-insurgency operations, but when it is impossible to say that the next decade will be safer than the last, it is quite another to make a change to our defence posture that may mean that we could not make large long-term deployments even if we wished to.

Will the Secretary of State confirm that the SDSR planning assumptions that applied to an Army of 95,000 can no longer be guaranteed with a regular Army of just 82,000? We all know that tough decisions are necessary. We support the changes in the non-deployable administrative structure and the equipment programme, and the moves to tackle top-heavy structures. However, all who believed the Prime Minister when he said in opposition,

“We want to see the British Army increase in size”,

will be dismayed by today’s news.

The Secretary of State had said previously that recruitment was a criterion for determining cuts. According to the honorary colonel of 2nd Battalion the Royal Regiment of Fusiliers, his battalion is just nine short of full strength. He has said that this move

“cannot be presented as the best or most sensible military option.”

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Further, some battalions have today lost their historic identities: the Green Howards, the Staffords and the Duke of Wellington’s. In Wales, there is a pyrrhic victory in saving a cap badge, but losing 600 people. The Argylls are being reduced to guarding castles and being the backdrop to Japanese tourists’ photographs. Will the Secretary of State explain precisely the military grounds for the decisions on the Green Howards, the Staffords and the Duke of Wellington’s? How many of the 17 units being affected today are at full strength or within 5% of full complement? What specific additional measures can he announce today to help service leavers find work?

We support an increased role for our reservists, but 15,000 brilliant part-time reservists cannot fill the gap created by the loss of 20,000 full-time regulars. To many, that appears to be not a response to the threats, but a self-made capability gap. Will the Secretary of State make it clear that reservists will not form stand-alone units on operations, and say what proportion of the forces on enduring operations he envisages being made up of reservists? Some will see this as a military gamble, and it is undoubtedly an enormous employment challenge. Will he guarantee that the Government will consider new legislation to prevent more active reservists from being discriminated against in the workplace?

In conclusion, these decisions flow from a defence review that put savings before strategy. Our forces face a perfect storm. We are seeing the largest number of service leavers in a generation at a time of deep recession. Today, jobs and military capability have been lost, and tradition and history have been sacrificed. There will not only be a smaller Army; many believe that there will be a less powerful Army and that this will be a less influential nation. Our armed forces, their families and our country deserve better.

Several hon. Membersrose—

Mr Speaker:
Order. I remind the House that, in accordance with convention, Members who arrived in the Chamber after the Secretary of State had begun his statement, of whom there was a significant number on both sides of the House, should not expect to be called.

Mr Hammond:
We have been treated to a lecture on the strategic context by a member of a Government who did not conduct a strategic defence review in 12 years. We have been told about reductions in the Army by a shadow spokesman who wrote to his party’s leader saying that they would have to examine the structure of the Army and that he recognised the need for manpower reductions. The Labour leader wrote back to him saying that

“we can expect to have to make further savings after the next election”.

What we have not heard from the right hon. Gentleman today is any kind of plan for how he would manage the £38 billion deficit in the Ministry of Defence’s budget that we inherited from him—no plan, no clue.

Let me address some of the specific points that the right hon. Gentleman raised. He referred to Germany and France. Germany spends 1.2% of its GDP on defence, while this country spends 2.1% of its GDP on defence. He talked about France. France is only at the beginning of a fiscal review that will lead to the production

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of a new livre blanc in the spring for the French armed forces. If he knows that there will not be cuts in the French armed forces, he is better informed than I and better informed than most of the French politicians and staff officers to whom I talk.

The right hon. Gentleman talked about sustainability. One of the achievements of the work that has been carried out over the past few months—it has been a huge piece of work—is the maintenance of capability through an intelligent approach to the challenge of doing more with less. We are using the reserves more intelligently, using our contractors more effectively and reshaping the Army—this process is about the shape of the Army in the future—to improve the tooth-to-tail ratio. We are ensuring that the manpower cuts are made in the areas that will have the least impact on the Army’s fighting capability. I assure him that the Army will be able to deliver the SDSR outputs required of it.

The right hon. Gentleman talked about the strength of individual units. He referred to a leaked letter from the colonel of the Royal Regiment of Fusiliers. The Army has looked at the recruiting ability of regiments and battalions not at a spot-point in time, but over a period of 10 years. It has looked at the demographic projections in the areas where the regiments and battalions recruit and drawn the appropriate conclusions.

The right hon. Gentleman clearly does not understand how a public duties incremental company works. The 100 or so men who make up the PDIC in Scotland will be drawn in rotation from the other battalions in the Royal Regiment of Scotland, so no one will serve a career in the Army being, as he disparagingly put it, photographed by tourists.

The right hon. Gentleman asked about the arrangement of affairs within the regiments where battalions are being lost. He asked specifically about the Green Howards and the Duke of Wellington’s. When battalions are withdrawn, it is for the regiments to decide how the antecedents and the thread behind those battalions are merged into the other battalions.

Finally, the right hon. Gentleman referred to the reserves. We are talking about an Army reserve of 30,000 trained strength, not 15,000 as he mentioned. Reserves will be deployed on operations. That is what will give the Army its sustainability in the future. On an enduring operation, we would expect the first six-month tours to comprise less than 10% reserves, with the reaction forces making up the bulk of the land forces.

Mr Kevan Jones (North Durham) (Lab):
It’s 12 months.

Mr Hammond:
It is six months. In the fourth and fifth turns of the handle, we would expect reserves to make up as much as 30% of the deployed force.

Nicholas Soames (Mid Sussex) (Con):
My right hon. Friend has come to the House with hard news for many regiments, which are extended families whose soldiers at all ranks will feel these announcements very strongly indeed, as do we all. Will he confirm that the reserve forces will have a new contract of employment, will be properly equipped for the tasks that they have to undertake and will be fully integrated into the regular Army? Finally, may I assure him, as I am sure he already knows, that the Army will make this work?

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Mr Hammond:
I am grateful to my right hon. Friend. That final comment is the point: the Army gets things done. When it has to deal with a situation, it makes it work. He is right that key to the strategy is the effective integration of the reserves. There will be a new deal for reservists. There is ring-fenced money for kit and training in a way that there has not been in the past. That kit has already started to arrive. This year, reserve formations will train overseas. The number of units training overseas this year will be 26 and that will increase over time. Vital to this process are the integration of the reserves, the deal for employers and the deal for reservists, which involves a greater commitment on our behalf, but also expects a clearer commitment from them about their liability to deployment. I have published a written statement today that sets out further details on how we intend to take the process forward.

Thomas Docherty (Dunfermline and West Fife) (Lab):
The Secretary of State said that this announcement would have no impact on the basing review, which started last July. May I press him to say whether the proposal for a multi-role brigade to come to Scotland will still go ahead? Specifically, what will happen to Caledonia and Leuchars? Will the Minister meet me and the right hon. and learned Member for North East Fife (Sir Menzies Campbell) to discuss those two bases?

Mr Hammond:
The right hon. and learned Member for North East Fife (Sir Menzies Campbell) has often reminded me of the concerns about Leuchars. I can only repeat that there will be no impact whatever on the basing review, and our intentions on basing remain as set out. We are doing the work to enable us to deliver them, and we have set out a time scale for doing so.

Mr James Arbuthnot (North East Hampshire) (Con):
At last, the uncertainty that has been hanging over the Army’s head has been dispelled. We can all be thankful for that, and I know that the Army will be. However, this plan relies on an increase in the recruitment of reservists unparalleled in modern history. What gives my right hon. Friend confidence that that will happen, and what incentives will employers be offered to release their best workers to serve their country?

Mr Hammond:
I am grateful to my right hon. Friend. The Army has looked at the experience of comparable forces around the world in recruiting reservists, and I agree that co-operation with employers will be critical. We intend to publish a consultation paper in the autumn on our proposed changes and our engagement with employers—the offer for employers, if you like—and we will bring forward our proposals in the new year. If implementing our vision of reserves requires legislation, we will legislate.

Huw Irranca-Davies (Ogmore) (Lab):
May I pay tribute to the young Guardsman Craig Roderick, who was one of the three soldiers killed earlier this week in Afghanistan? He was described as follows by his superior officers:

“Brave, honest and loyal, he was the sort of man anyone would be glad to have in his fire-trench when the going got tough.”

Does the Secretary of State recognise that although the Welsh Cavalry being saved is a great tribute to those who have campaigned for it, it is, as my right hon.

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Friend the shadow Secretary of State said, a pyrrhic victory considering the loss of the historic 2 Royal Welsh?

Mr Hammond:
I do not agree with the hon. Gentleman. There has been much speculation in the media about the Queen’s Dragoon Guards, which will continue in its current form. It is necessary to take five battalions out of the infantry, and the Army has taken a methodical and scientific approach. Regrettably, 2 Royal Welsh is a battalion that has to be lost.

Sir Menzies Campbell (North East Fife) (LD):
I share the relief of many in the House that the cap badges and traditions of regiments and units will be preserved. However, in spite of the efforts of my right hon. Friend the Secretary of State, I retain a certain scepticism that we can cut the professional Army by 20% with no impact on capability or on the policy options that might be available to Her Majesty’s Government.

My right hon. Friend seeks to separate the issue of the structure of the Army from that of its basing requirements. Again, I must respectfully disagree with him. The proposal that Typhoons should be transferred from Leuchars to Lossiemouth was based on the proposition that the Army required Leuchars because there was to be a multi-role brigade stationed in Scotland. Now we hear that no such brigade is to be stationed in Scotland. Is not that the final nail in the coffin of the proposal to move Typhoons from Leuchars to Lossiemouth?

Mr Hammond:
No, it is not. It remains our intention to locate an infantry brigade in Scotland. As the right hon. and learned Gentleman will see when he looks at the brochure that the Army has produced, which is being circulated to Members, such brigades will be multi-role.

I want to tackle the right hon. and learned Gentleman on his point about capability. He questions whether a 20% reduction can possibly lead to no reduction in capability. The SDSR was already predicated on a reduction to a trained regular strength of 94,000. The challenge that the Army has taken on board is how to manage a reduction of a further 12,000 with the minimum impact on the outputs that it delivers. It has done that by using the intelligent approach of the “whole force” concept, with reservists and contractors playing a significantly larger role. The General Staff assures me that they can deliver the outputs required under the SDSR with that construct, and I believe them.

Mrs Madeleine Moon (Bridgend) (Lab):
The House is well aware that this is a dangerous moment. This country will now have the capacity to fight only in coalition, with expeditionary forces, no enduring capacity and no surge capacity. How can the Secretary of State be sure that the people of Wales, and those of England and Scotland, will be willing to take part in the reserve forces? How can he be sure that employers will be willing to free their people for the reserve forces, and how can we be sure that this country will be able to defend itself with such a high level of reserves, which we have no assurance will actually be in place?

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Mr Hammond:
More rubbish from the Opposition, I am afraid, and that from Members whose Government systematically under-equipped our forces and cancelled training for our reservists. We have the fourth largest defence budget in the world. The hon. Lady asks me why I think we will be able to recruit reservists. The first reason is that we will guarantee them the training, kit, uniforms and equipment that they never had under the last Government. It is simply rubbish to say that we will have no surge capacity and no enduring capacity. I have just set out how the construct that the Army has put together will deliver us the ability to deploy a brigade-sized formation on an enduring operation indefinitely.

Mrs Moon:
One.

Mr Hammond:
Well, how many would the hon. Lady like to deploy? How many wars does she want to fight at a time?

Mr Julian Brazier (Canterbury) (Con):
In welcoming the statement, may I seek assurance from my right hon. Friend that the members of the 5th Battalion the Royal Regiment of Scotland, in my constituency, who are hearing what will inevitably be painful news, will still have exciting prospects within the remaining four battalions and one company of the regiment?

I particularly welcome what my right hon. Friend said about the reserve forces and urge him to recognise that what he said about integration is critical. If we want to rebuild the officer base of the reserve forces, at the core of that will be roles for formed bodies of men—units and sub-units—not simply the milking-off of augmentees, as has been happening for the past three years in Afghanistan.

Mr Hammond:
First, the positive news for people in the 5th Battalion the Royal Regiment of Scotland, which is based in my hon. Friend’s constituency, is that the regiment is under-recruited, so the merging of that battalion into the remainder of the regiment should be done without the need for a loss of personnel.

My hon. Friend is absolutely right about the integration of reserves. There will be a role for all three forms of use of reserves. Individual augmentees will continue to play an important part, delivering specialist skills in support of the reaction forces on an early deployment. However, formed sub-units, and in some cases formed units, will also be a vital part of how the adaptable force operates. That is one of the major changes being announced today.

Angus Robertson (Moray) (SNP):
It is with great sadness that I add my tribute to my constituents from RAF Lossiemouth who died in the Tornado incident earlier this week—Flight Lieutenant Hywel Poole, Squadron Leader Sam Bailey and Flight Lieutenant Adam Sanders—and to the fourth crew member, who is still in hospital. The thoughts of everybody in Moray and across the House are with their families, friends and colleagues.

Turning to today’s defence announcement, the UK Government have already acknowledged that defence personnel in Scotland have been cut disproportionately in recent years—more than 27% in Scotland, compared with 11% in the UK as a whole. Today, those cuts continue. Although the retention of cap badges is welcome,

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the Tories have broken their promise to restore the six Scottish infantry regiments. Will the Government confirm what the established strength of the Royal Regiment of Scotland will be after the changes have been introduced, and that the Scottish infantry in Scotland is already smaller than the infantry of the Irish Republic?

Mr Hammond:
The hon. Gentleman confuses basing, on which he talked about personnel in Scotland, with the structure of the Army, on which he talked about the Royal Regiment of Scotland. I simply do not think he understands what we are talking about today.

The key fact that the hon. Gentleman cannot deal with is that although he talks about a sixth regiment—I presume he means a sixth battalion—in the Royal Regiment of Scotland, the truth is that it has five battalions and has not been able to recruit to keep them up to strength. It is one of the most under-recruited regiments in the British Army. It is no good his asking for extra battalions and more regiments, because it cannot recruit to fill the ones that it already has. It also has one of the highest percentages of overseas-recruited troops in the British Army. That is the challenge that he faces before he can bring such issues before the House.

Sir Peter Tapsell (Louth and Horncastle) (Con):
My right hon. Friend’s statement is an echo of the Geddes axe statement of the 1920s, for which the country, Europe and the rest of the world ultimately paid a very heavy price. One of the main reasons national service was abandoned was that it was decided that too many non-commissioned officers and too many of the best young officers of the Army had to be withdrawn from the fighting ranks to train 18-year-old national servicemen, who served for only two years. One thing that is absolutely certain is that the day will come when we need to increase our armed forces in some unpredictable crisis. Will the new, reduced Army have the capacity to train the necessary numbers of young men in the way Kitchener did, raising 1 million in a year?

Mr Hammond:
I am not sure that raising 1 million troops in a year will be easy, but I can say to my right hon. Friend, who raises an important point, that one design parameter we set for the Army 2020 exercise is that the Army should be able to regenerate capacity if, at a point in the future, the strategic context demands it and the fiscal situation permits it. I can assure him that the Army, in designing Army 2020, has held that very much to the front of its consideration.

Mr Jeffrey M. Donaldson (Lagan Valley) (DUP):
This is a difficult day for the Army, but I welcome the retention of the 1st and 2nd Battalions of the Royal Irish Regiment—the 2nd Battalion is a reserve unit—and of the Irish Guards. Reserve forces are heavily recruited in Northern Ireland. We supply up to 20% of operational reserves in the United Kingdom. When will we hear of the new formation of the reserve units in each of the regions?

Mr Hammond:
If the right hon. Gentleman looks at the written statement that I laid this morning, he will see that a new Royal Auxiliary Air Force unit will be stood up in Northern Ireland.

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Bob Stewart (Beckenham) (Con):
The cuts have been particularly savage on English county regiments, especially given the fact that not one Scottish regiment is going. This is difficult, and will impact on the regimental system. English county regiments are meant to be linked to counties, but they are being dislocated, whereas Scottish regiments still have the regimental system. From now on, we will have a two-tier regimental system. Will my right hon. Friend explain how the system will work with regard to connecting regiments to the people of England?

Mr Hammond:
As I said in my initial statement, I recognise the importance of the affiliations of individual units to regions and nations of the UK, particularly for recruiting. We intend to maintain that system. Much of the speculation in the media over the past few months has been about the suggestion that we would somehow abolish the regimental system and move to a continental-style army. Nothing could be further from the truth. I should remind my hon. Friend that many English territorial regiments—for example, the Royal Anglian, The Princess of Wales’s Royal Regiment, The Rifles, and the Duke of Lancaster’s Regiment—have not been touched by today’s announcement.

Mike Gapes (Ilford South) (Lab/Co-op):
Does not the statement mean greater co-operation with our European Union NATO partners? Does the Secretary of State agree that the future of British defence policy will be increasingly Europe-oriented?

Mr Hammond:
I agree that most, but not all, operations in which we will wish to be involved are likely to be conducted with allies, which will usually mean NATO allies. It is absolutely true that as the US pivots towards the Asia-Pacific region in responding to the increasing strategic challenge from China, we and our European NATO allies will have to work harder to generate the European end of the NATO deal.

Sir Bob Russell (Colchester) (LD):
I welcome what the Secretary of State has said about 16 Air Assault Brigade and am relieved that the Royal Anglian Regiment’s two battalions survive, but, according to the House of Commons Library, we have to go back to 1750 to find a time when the British Army was smaller than that projected—the Army will be half the size it was at the time of the Falklands war. Given the armed forces covenant and the proud military history of our nation, is the Secretary of State aware that he will go down in history as the man who hammered the Army?

Mr Hammond:
If there is a man in the Chamber who has nothing to complain about today, it is the hon. Gentleman. It is simply not helpful or relevant to compare the size of the Army now with that of 50 or 100 years ago. The capabilities—equipment, connectivity, communications and firepower—of an infantryman in the field today are an order of magnitude different from those of infantrymen of the past. I come back to two simple facts: first, both the country and the MOD inherited a fiscal disaster; and, secondly, we must reconfigure the structure of our forces to deal with the threats we will face in future, not the ones we faced in the past.

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Dan Jarvis (Barnsley Central) (Lab):
May I record my sadness at the loss of a battalion from the Yorkshire Regiment? Today’s statement has not been underpinned by a strategic analysis of the world in which we operate. It depends on a much greater reliance on our reserve forces, which carries real risk, and the process has increased uncertainty and doubt among our forces and their families. What specific measures can the Secretary of State announce today better to support those who remain in the service, and—very importantly—what can he say about those who will be moving into the labour market at a particularly challenging time?

Mr Hammond:
The hon. Gentleman says that the announcement is not underpinned by any strategic analysis, but he supported a Government who did not conduct a strategic defence review in 12 years. The announcement is underpinned by the findings of the strategic defence and security review of 2010, which established a National Security Council, which continuously reviews the strategic context.

The hon. Gentleman asks about people who will remain in the forces. I hope to be in a position very soon to make an announcement about the military pension scheme, and we are well advanced in designing what the military calls the new employment model, which will set out more clearly our offer to military personnel, including how we can make the remuneration package that underpins the armed services more flexible and responsive to the needs of individuals than it has been in the past.

The Army has well-structured arrangements in place to support those leaving the service, but we are looking at additional measures, including working with external charities, to ensure that they are supported in every way possible.

Mr Bernard Jenkin (Harwich and North Essex) (Con):
However painful the statement is, and it must be bitter for my right hon. Friend to deliver it, we recognise that it is an inevitable consequence of the circumstances we face. Does he accept, and will he underline in his response, that there is an element of gambling in every defence review and decision, and that the ability to regenerate is central? Will he also confirm that the importance of maintaining the equipment programme—equipment takes much longer to regenerate—is reflected in the priorities of his Department?

Mr Hammond:
My hon. Friend is absolutely right. It is critical that we make the Army sustainable by dealing with the underlying fiscal chaos that we inherited. Labour did not deal with the equipment programme but simply pushed the problems further to the right, building up a larger and larger bubble of unfunded theoretical projects that would never be delivered. That does not help anyone. He is correct, of course, that the ability to regenerate is critical to the Army’s strategic resilience. We do not know what will happen in five or 10 years, so the ability to regenerate capability is our greatest protection for the future.

Joan Walley (Stoke-on-Trent North) (Lab):
Today’s announcement about the 3rd Battalion the Mercian Regiment—the Staffords—will be met with anger and dismay. Given what the Secretary of State says about the importance of affiliation to local counties, will he

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tell me how he arrived at the decision to disband the battalion? Does he not realise that the help that will be needed, particularly from the British Legion, by those who will lose their jobs, and who have only ever served with loyalty and distinction, will be more badly needed than ever before?

Mr Hammond:
The hon. Lady has completely misunderstood the point.

Joan Walleyindicated dissent.

Mr Hammond:
Yes, she has. The statement is not about individuals losing their jobs but about the structures within which individuals will serve. The disbandment or withdrawal of a regiment or battalion does not mean that the individuals in it will lose their jobs. As the Army works on its manning plan over the next couple of years—there will be further tranches of redundancy—people will be able to move across the Army to fit the newer structure. The hon. Lady asked me how I arrived at the decision. I did not arrive at the decision: the Army arrived at it. The Army has done the modelling work, and the Army has come to the conclusions. [Interruption.] Opposition Members do not like a Government who listen to the professionals running our military, our health service or our schools. They are used to a model based on political interference from the top down. That is not the view of this Government.

Mr James Gray (North Wiltshire) (Con):
Most of us understand, while deeply regretting, the financial imperative that has resulted in the reduction to 82,000 soldiers. Central to the Secretary of State’s announcement today is the importance of the TA in coming years. I might have missed this, but I would like his assurance on a couple of details. First, timing is central. Will the TA be built up before the regular forces are reduced? Secondly, is there room for transfers from the regular forces into the Territorials?

Mr Hammond:
I think I mentioned that one of the units being withdrawn will become a TA unit. Of course, people leaving the regular forces are always most welcome to join the reserves. My hon. Friend’s point about timing is important, and the process of building up the reserves has already begun. A recruiting campaign was launched over the Christmas-new year period, and further campaigns are in hand. We expect there to be a steady build-up in the reserves between now and 2018.

Hugh Bayley (York Central) (Lab):
I am still unclear. The Secretary of State said, “I can confirm that no current regimental names or cap badges will be lost”. Will he state clearly for the House that neither the names nor the badges of the Duke of Wellington’s or the Green Howards will be lost? Will he tell us the current strength of a Yorkshire regiment, both in reservists and regulars, and what it will be after the 2nd Battalion the Yorkshire Regiment has been disbanded?

Mr Hammond:
The reference to current regiments is to the current regiments of the British Army. There will be no loss of regimental names or cap badges. We have assured that by removing battalions only from multi-battalion regiments. He is referring not to a current regimental name but to an antecedent regimental name attached to a battalion. What happens to that name and how the battalions within the regiment rename and

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reorder themselves after the structural change is a matter for the regimental family. It is for them to decide. If they wish to retain the antecedent names appended to the battalions, they will be entitled to do so.

Dr Andrew Murrison (South West Wiltshire) (Con):
I welcome the well-placed confidence expressed in reserve forces in the statement. The Secretary of State will well know, however, that our reserve forces are under-recruited, particularly in specialised areas. What consultation has he done with employers, particularly in the private sector and among small employers, who are particularly affected by the loss of their reservists, to determine whether his plans are feasible? Has he consulted SaBRE— Supporting Britain’s Reservists and Employers—and the National Employer Advisory Board?

Mr Hammond:
General Sir Nick Houghton, who headed the reserves review and is managing the ongoing work, has consulted SaBRE and all other interested parties, and continues to do so, but I will be frank with my hon. Friend: it will be hardest to recruit from among small and medium-sized employers, because public sector and large corporate employers are much better able to offer the flexibility that reservists need, and much better able to see the benefits of having reservists in their employment. There is also considerable potential among the self-employed—people who perhaps carry out consultancy work—with the offer of much more predictable periods of training and deployment, which would enable them to plan for those deployments as part of their self-employed career. We will seek to recruit from SMEs but it will be the most difficult part of the ask.

Derek Twigg (Halton) (Lab):
Today is a dark day for the Army and the country’s ability to project sufficient force around the world in its national interests. I wish to ask the Defence Secretary a specific question about the reservists. He said that we will have enough in place by 2020—30,000, according to his written statement—but what if we do not? Has his Department done a risk assessment, and if so will he publish it?

Mr Hammond:
The intention is to have a 30,000-strong trained reserve in place by 2018, but clearly much of what we do, including building up a trained reserve to 30,000, has risks attached. However, the management of risk is the everyday business of the Department and the Army, so of course we will have considered the risks and how to manage them. I am not sure whether I will publish the risk assessment.

Derek Twigg:
Why not?

Mr Hammond:
Because risk assessments and registers are useful business tools, provided they can be used internally as business tools—as soon as they become public documents, they no longer serve their essential purpose. But I will consider the hon. Gentleman’s question and write to him with a fuller answer.

Mark Lancaster (Milton Keynes North) (Con):
I remind the House of my interest. Integration with the reserve forces will be key. Now that we have announced which regular regiments and battalions will be cut, there will be a clamour to announce which TA units will be merged and changed. May I encourage the Secretary

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of State to resist that temptation until the basing review is complete, because to do so would be premature for the crucial integration of regulars and reserves?

Mr Hammond:
My hon. Friend is absolutely right. If the integrated Army is to work, the pattern of regular basing and the pattern of reserve centres have to mesh to allow them to train and work together. We will not be in a position to make a further announcement about the lay-down of reserve units until the basing review, the consultation on reserve terms and conditions, and the employer engagement are completed. I have no doubt, however, that changes will be required. As I have said, and would like to re-emphasise, the reserves will be an integral and essential part of the British Army, and decisions about them will have to be made for the good of the Army as a whole.

Kevin Brennan (Cardiff West) (Lab):
May I record my concern at the loss of one of the battalions from the Royal Welsh? Will the Secretary of State tell the House plainly and without obfuscation how many soldiers are likely to be made redundant as a result of today’s announcement, and of them how many will have served in Afghanistan?

Mr Hammond:
It is no good the hon. Gentleman saying “without any obfuscation”. He is asking a ridiculous question. [Hon. Members: “Oh!] Yes, he is. With no obfuscation, the answer is: no one, as a result of today’s announcement. As a result of the announcement by my right hon. Friend the Member for North Somerset on 18 July 2011, there will be further redundancies, as we reduce the numbers in the regular Army by 19,000 over time.

Mr Tobias Ellwood (Bournemouth East) (Con):
I commend the Secretary of State for yet again coming to the House and taking the tough decisions, the need for which we inherited from the previous Labour Government. Will he join me in expressing disappointment at the cries of “Shame” that came across when the regimental names were read out? Under Labour’s watch, we lost four battalions. The Royal Green Jackets—the battalion I served with—the Light Infantry and the Devon and Dorsets all disappeared, and under its watch we also lost 18 TA infantry regiments. I am pleased to see those numbers now going up. Will he confirm that we might be able to learn lessons from the United States and Australia as we rebalance the ratio between the Regular Army and the TA?

Mr Hammond:
And it was under Labour’s watch that the fiscal problem that underlies today’s announcement was allowed to build up. My hon. Friend is absolutely right: we can learn lessons from the United States and Australia, which are two examples that the Chief of the General Staff and his staff have looked at carefully in formulating today’s proposals.

Mr Dai Havard (Merthyr Tydfil and Rhymney) (Lab):
The memorial service for one of my constituents, Lance Corporal Richard Scanlon, which will take place on 21 July, will be easier now that we are not getting rid of the Queen’s Dragoon Guards. I wrote to the Secretary of State about the criterion that was being used. Today’s statement is effectively a work in progress, which is

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understandable. There is now some limited information in the attached written statement about how the employment model might be taken forward and the discussions about the reserves. However, the argument about saving the Welsh Cavalry was not an argument simply about the Welsh Cavalry; it was an argument about how things looked across the whole of the United Kingdom. This is a United Kingdom issue, but it is also a Navy and an Air Force issue, and at some point I would like to know how the Secretary of State plans to show us how integration will work not only across the Army, but across—

Mr Deputy Speaker (Mr Nigel Evans):
Order. Please resume your seat. Questions must be brief. Hon. Members can see how many—[Interruption.] Order. Hon. Members can see how many of them wish to be called on the statement. I cannot allow it to go until the very end, because we are time limited and there is other business to come. Mr Havard, will you please ask a question?

Mr Havard:
My question is this. The decision about whether these formations are about need or about money will require further debate in this House, involving a lot of people. How does the Secretary of State intend to proceed?

Mr Hammond:
It is a pity that the hon. Gentleman did not think of that before. Today’s announcement is about two things: addressing the fiscal necessity of putting our armed forces on a sustainable basis and structuring them to face the challenges of the future, post Afghanistan.

Patrick Mercer (Newark) (Con):
I am relieved that there are plans to regenerate the Army in a time of crisis, yet I am concerned that recruiting is about to be passed into the hands of privatised individuals. How confident is the Secretary of State that this untried system will work, particularly in a time of crisis?

Mr Hammond:
I am confident that employing professionals to support our recruiting effort is the right way to go forward. The Army has a clear plan. My hon. Friend, as a former Army officer, will know that the Army puts a great deal of work and effort into these things. It leaves no stone unturned. The Army is confident, and I take my lead from it.

Tristram Hunt (Stoke-on-Trent Central) (Lab):
There is real anger in Stoke-on-Trent, a key recruiting area for the 3rd Battalion the Staffords at the way the decision has been handled. Can the Secretary of State explain to my constituents why the 3rd Battalion, which can trace its history back to 1705, was chosen for elimination relative to other battalions—he needs to take responsibility for these decisions—and why, after the expertise built up in Iraq and Afghanistan, it has been removed from the order of battle?

Mr Hammond:
There were shades of the sound of bedpans dropping there. The point is this: the Army has made a decision about which battalions in each affected regiment should be withdrawn from the order of battle,

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and it has done so against a number of criteria, including their current deployment and any future commitments to Operation Herrick.

Mr John Baron (Basildon and Billericay) (Con):
I declare an interest, having served with the Royal Regiment of Fusiliers. I am very sorry to say that I think the Government are making a very grave error with these decisions. Not only does the decision to cut the Army by a fifth smack of accountants running amok, but the decision to axe the better recruited English battalions, such as 2RRF, at the expense of the more poorly recruited Scottish battalions smacks of a grubby political fix, given the advent of the Scottish referendum. If the Government cannot make the right decision within the MOD budget, will they at least source funds from the ridiculous £1,200 million that we are sending in aid to India?

Mr Hammond:
My hon. Friend will have to take up issues about the allocation of budgets between Departments with the Chancellor the Exchequer, but I can tell him—because his comments appear to be drawn directly from the leaked letter from the colonel of the Royal Regiment of Fusiliers—that he is simply wrong to describe the Royal Regiment of Fusiliers as one of the best recruited regiments in the Army. If we look at the position over a 10-year period and at the demographics going forward, along with all the other issues that the Army has set out as criteria to be taken into account, the conclusions are clear.

Nick Smith (Blaenau Gwent) (Lab):
Brave men and women of the 2nd Battalion the Royal Welsh, who want to serve our country, have been badly let down today. Instead of giving us warm words, can the Secretary of State tell us what concrete steps will be taken to support sacked soldiers into the job market, given the massive scale of the cuts?

Mr Hammond:
Nobody is going to be sacked as a result of today’s announcement. The brave men and women serving in the 2nd Battalion the Royal Welsh will continue serving in the 2nd Battalion the Royal Welsh, and when it is withdrawn, many of them—probably most of them—will be absorbed into what will then become a single-battalion Royal Welsh Regiment. We have well established arrangements in place for supporting those who leave the Army—70% of those who left in the last tranche of redundancies were volunteers, who had asked for redundancy—and we hope to make them even stronger in future.

Dr Julian Lewis (New Forest East) (Con):
I am sure that my right hon. Friend has done the very best possible under the fiscal constraints in which he is operating, but will he take back to his Cabinet colleagues the message that in parts of this House, and in the country, there is a feeling that expenditure on defence does not rank as highly as it should in the scale of the nation’s priorities?

Mr Hammond:
My hon. Friend is very capable and has, indeed, effectively made that point and his view on it known to my Cabinet colleagues.

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab):
The Secretary of State referred to demographics being key to the decisions being made. My constituency is a rich area for recruitment into the

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armed forces, especially the 2nd Battalion the Yorkshire Regiment—the Green Howards—which is currently in Cyprus providing combat support in Afghanistan. Is the Secretary of State saying that the number of a battalion could be reduced for antecedent identities in regiments, so that names such as the Green Howards could be retained?

Mr Hammond:
No. We looked at the option of reducing the size of battalions, so as to avoid the need to withdraw them, but that would have created a tremendous inefficiency. It would have created a top-heavy structure with, proportionately, a large amount of expenditure going on administration. It is simply not right, I am afraid, to talk about the Yorkshires as a regiment that has historically been well recruited. It is a regiment that has had difficulty in recruiting historically. Looking over a 10-year period—the Army does not look at a point in time—the Yorkshire Regiment has been under-recruited consistently.

Richard Drax (South Dorset) (Con):
I speak as a former soldier, and I have huge respect for the Defence Secretary. I appreciate that he has inherited a mess and is under orders from above, but I have to say that I think that the announcements the Government are making are very short-sighted. Soldiers I have spoken to, including senior soldiers, all say—and I agree with them—that if the Army is to get smaller, the proportion of professionals must get higher. Would he be prepared to change his mind on that point?

Mr Hammond:
No. If we are to protect our military output—the capability of the Army—in a world where budgetary constraints mean that we can have only a smaller number of regular serving soldiers, we must integrate more effectively with the reserves and use our contractors more effectively. That is the only way to protect military capability within those constraints.

Mr Peter Hain (Neath) (Lab):
What sort of reward for bravery is it that 600 members of the 2nd Battalion the Royal Welsh could be faced with the sack? Is it not disingenuous for the Secretary of State to say that 19,000 soldiers will be sacked, but that those from a particular battalion, such as the 2nd Battalion the Royal Welsh, might somehow be miraculously redeployed? Those two statements do not add up.

Mr Hammond:
Well, I am afraid that they do. I remind the House that the right hon. Gentleman was a member of the Cabinet that was responsible for the underlying fiscal shambles that is the cause of many of the things that we are having to do. Whether or not someone is serving in a unit that is to be withdrawn will make them no more or less likely to be selected for redundancy under future tranches of the Army redundancy programme, which will deliver the manpower reductions announced in July 2011.

Penny Mordaunt (Portsmouth North) (Con):
During the first round of naval redundancies, an extremely good system was put in place by my right hon. Friend’s Department to flag up any undesirable anomalies, such as a husband and wife in service accommodation both being earmarked for redundancy. As these changes are rolled out to the Army, will people who are leaving it or

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moving role or location within it have a similarly excellent service so that such anomalies can be flagged up and dealt with?

Mr Hammond:
One of the strengths of the regimental system in the Army is the degree of close pastoral attention to these matters that can be delivered. The Army regards that as hugely important, and I know that it will do everything it can to support members of the family whenever change is required.

Jim McGovern (Dundee West) (Lab):
I am delighted to hear that the name of the Black Watch will be retained. I offer my gratitude to the 3,000 people in Dundee who signed the petition in support of the Black Watch. At the risk of being accused of nepotism, I must also mention my mother, Alice McGovern, who collected more than 1,000 of those signatures. In fact, she was ejected from a local shopping centre for collecting signatures for the petition. People have—

Mr Deputy Speaker:
The hon. Gentleman should keep his question brief.

Jim McGovern:
Thank you, Mr Deputy Speaker.

People have talked about what happened on the previous Government’s watch and about what is happening on this Government’s watch. I would like to ask the Minister whether, on his watch, there will always be a Black Watch.

Mr Hammond:
I have heard that slogan before. I congratulate the hon. Minister’s mother—[Interruption.] I meant to say “the hon. Member’s mother”. As he rightly observes, the Black Watch—3rd Battalion, the Royal Regiment of Scotland—will continue in its present form.

Mr Ben Wallace (Wyre and Preston North) (Con):
May I caution the Secretary of State not to take advice from Labour, which I distinctly remember sending out redundancy notices to my fellow soldiers when they were serving on the front line in Bosnia? Can he assure me that the incremental company that my right hon. Friend is planning to form from the Royal Regiment of Scotland will take part not only in public duties but in homeland security and civil support functions, as well as providing other important military training assistance?

Mr Hammond:
My hon. Friend is absolutely right to warn me not to take advice from the party opposite, and I shall heed his recommendation. It is indeed the case that the public duties incremental company will also have other military duties. It will also be a rotating company; its strength will be found from the other four battalions in the regiment, so nobody will spend their entire military career in the public duties incremental company.

Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op):
In regard to the infantry battalions that have been axed, will the Minister explain what he meant when he said

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that the demographics of those recruitment areas had been looked at? Is he seriously suggesting that the birth rate in our areas cannot sustain our battalions?

Mr Hammond:
In some cases, yes. The cohort from which the infantry recruits—typically they are men aged between 18 and 24—is set to decline across the UK as a whole by 12% over the next decade. There are specific issues in some specific regional geographies, and there is also a projected change in the composition of that population cohort, including a relative increase in groups in which the Army is not very successful at recruiting at the moment. There are therefore some very big challenges ahead.

Oliver Colvile (Plymouth, Sutton and Devonport) (Con):
What discussions has my right hon. Friend had with other Government Departments to ensure that they will be able to release reservists in order to defend our country?

Mr Hammond:
Sir Bob Kerslake, the head of the civil service, is leading on that issue. We will ensure, when we publish our consultation paper in the autumn, that we clearly set out the Government’s offer to our employees in support of the reserve forces.

Geraint Davies (Swansea West) (Lab/Co-op):
Welsh soldiers who have risked their lives and lost their friends in Afghanistan now face the sack. We heard this morning in the Welsh Affairs Select Committee from military and academic experts that the Welsh forces should not be the first to be considered in this programme. We should consider the ceremonial forces, the Gurkhas and the Scots. Alongside that, the provisions of the Enterprise and Regulatory Reform Bill will make it much more difficult to recruit people working in small businesses because of the end of tribunals. Does the Secretary of State accept that this is a grubby political fix, and that he will not be able to recruit people into the Territorial Army because of the changes that will make it easier to sack people?

Mr Hammond:
If the hon. Gentleman were in the Army, I suspect that he would be told to get his hands out of his pockets.

David T. C. Davies (Monmouth) (Con):
Why are we scrapping five infantry regiments in the United Kingdom but not considering the two battalions of Gurkhas? Does the Royal Welsh need an ageing, glamorous film star to take up the cudgels on its behalf?

Mr Hammond:
No. The reason why we have not taken out one of the battalions of the Royal Gurkha Rifles is that we have a partnership arrangement with the Sultanate of Brunei, under which one of those battalions is stationed on rotation in Brunei. That arrangement works extremely well for the British Army, and it can be sustained only with two separate Gurkha battalions.

Gordon Banks (Ochil and South Perthshire) (Lab):
Today’s announcement has succeeded in doing what our opponents in the first world war, the Boer war, the

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Korean war, Iraq and Afghanistan all failed to do. It has reduced the Argyll and Sutherland Highlanders to an ineffective fighting unit. The Argylls are recruited from part of my constituency, and the announcement is already being greeted with dismay and anger there. Does the Secretary of State really believe that making the Argylls a ceremonial division will provide it with a suitable future, given its historic legacy?

Mr Hammond:
If my memory serves me correctly, the Argyll and Sutherland Highlanders were reduced to company strength shortly after the withdrawal from Aden in 1967.

Greg Mulholland (Leeds North West) (LD):
The Yorkshire Regiment has a strong, positive association with the whole county. Indeed, we look forward to welcoming the Secretary of State to Leeds next Thursday. Will he assure me that that strong association will continue, and that efforts will continue, if not increase, across the whole county to recruit people to the regiment?

Mr Hammond:
Yes, I can reassure my hon. Friend that we recognise the value of the link between specific regiments and the regions and nations. It is a potent aid to recruitment.

Graeme Morrice (Livingston) (Lab):
Following on from the question from my hon. Friend the Member for Ochil and South Perthshire (Gordon Banks), will the Secretary of State provide the House with further details of what the proposed changes to the Argyll and Sutherland Highlanders—5th Battalion, the Royal Regiment of Scotland—will mean in practice? How many troops will it lose, what capabilities will it retain, and what will its new role as a public duties company entail?

Mr Hammond:
It will have between 100 and 150 officers and soldiers. Its principal duties will be to provide a guard at Edinburgh castle and at the palace of Holyroodhouse. It will also have additional ceremonial duties around Edinburgh, and as I said to my hon. Friend the Member for Wyre and Preston North (Mr Wallace) a few moments ago, it will support other units of the Royal Regiment of Scotland in other homeland resilience roles.

Dr Phillip Lee (Bracknell) (Con):
I am proud to have the Royal Military Academy Sandhurst in my constituency. The officer cadets and the Nepalese community there will welcome the clarity of the Secretary of State’s statement today. I stand fully behind his decisions. However, along with my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) and my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), I will need reassurance about future upscaling. Will the Secretary of State confirm that we will be able to do that if necessary, and that the RMA’s capacity will be able to match any such requirements?

Mr Hammond:
Yes, I can give my hon. Friend that assurance. We recognise the value of our world-leading military academies, which train people not only for the British forces but for many other forces around the world. It is a source of great strength to the UK that those academies allow us to deliver influence in that way.

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Nia Griffith (Llanelli) (Lab):
I am very concerned about the loss of 2nd Battalion The Royal Welsh, and I hope that the Secretary of State will be able to deliver the necessary redeployment opportunities. As he has hinted, however, a 20% reduction is difficult to achieve by voluntary redundancies alone. Following on from the answer that he gave to my hon. Friend the Member for Barnsley Central (Dan Jarvis), will he tell us whether those having to leave service accommodation will be treated sympathetically and given extra time and help to find new homes?

Mr Hammond:
This is not just about redundancy, voluntary or otherwise. The Army is continually recruiting and people are continually leaving it when they reach the end of their period of service. It is unlike most other careers. Over a period of time, the Army has considerable ability to change its size, simply by slowing the flow of recruiting while allowing the outflow of people at the end of their careers to continue. We will minimise the need for redundancy, both voluntary and compulsory.

Jeremy Lefroy (Stafford) (Con):
The Staffords have served our country with great distinction since they were first raised in 1705 in Lichfield, the constituency of my hon. Friend the Member for Lichfield (Michael Fabricant), who supports me in this question. It is essential that the name of the Staffords is maintained, as Staffordshire and Stoke-on-Trent are among the best recruiting grounds for the Army. Will the Secretary of State ensure that the name is retained with the serving unit?

Mr Hammond:
The opportunity for the name to be retained is there. It is for the Mercian Regiment itself to decide how it wants to append the antecedent names of the battalion that is being removed to the other battalions.

Sandra Osborne (Ayr, Carrick and Cumnock) (Lab):
When will the Secretary of State provide the Defence Committee and the House with the details of the so-called £38 billion black hole, without which his statement is not credible?

Mr Hammond:
I think my statement is absolutely credible. The £38 billion black hole is a figure acknowledged by the Opposition spokesman in his leaked letter to the Leader of the Opposition. If the hon. Lady is so interested, I should tell her that I am going to appear before the Defence Committee and will be happy to answer questions on that subject.

Several hon. Membersrose—

Mr Deputy Speaker (Mr Nigel Evans):
Order. Questions need to be very brief with no preambles.

Anna Soubry (Broxtowe) (Con):
Will the Secretary of State be so good as to come to the reservist centre at the Chetwynd barracks and meet senior officers who told me on Sunday that they believe we need legislation if we are to deliver the number of reservists we clearly need?

Mr Hammond:
I am going to publish a consultation paper in the autumn. We will explore through that consultation process whether other changes, possibly including legislation, are needed to give effect to our vision for the reserves.

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John Glen (Salisbury) (Con):
Many of my Salisbury constituents have expressed concern that the increased number of reservists used to mitigate the impact of today’s cuts will not prevent a loss of capability. Will the Secretary of State reiterate why he is confident that there will not be an emerging capability gap as a result of today’s announcements?

Mr Hammond:
Because the Chief of the General Staff and the team carrying this work have presented me with a plan for the future Army, which they tell me will be able to deliver the output requirements of the strategic defence and security review. I have confidence in their professionalism.

Alun Cairns (Vale of Glamorgan) (Con):
I am pleased that the Queen’s Dragoon Guards, the Welsh Guards and the Royal Welsh are to be retained, although I am disappointed that one battalion of the Royal Welsh has to be lost. Can the Secretary of State advise the House what impact his statement will have on regional brigades?

Mr Hammond:
The seven brigades in the adaptable force will continue to have a regional function and will deliver that connection with civil society that is so important to our armed forces. If my hon. Friend has not yet seen my written ministerial statement, I remind him that a new Royal Auxiliary Air Force squadron will be stood up—probably in St Athan in his constituency.

James Morris (Halesowen and Rowley Regis) (Con):
Does the Secretary of State agree that a modern fighting force is a combination of manpower, technology and modern fighting skills, and that nothing he has announced today can detract from that central strategic purpose of the Army?

Mr Hammond:
My hon. Friend is absolutely right: this is a forward-facing announcement, looking at the Army of the future while respecting the traditions of the past.

Nadhim Zahawi (Stratford-on-Avon) (Con):
I understand the Secretary of State’s predicament, and the Labour party should hang its head in shame for the financial mess they left behind. What message does my right hon. Friend have for the Royal Regiment of Fusiliers, who are currently recruiting and outperforming all other regiments, including the Scottish regiments? Today’s decision will be a very tough one for them.

Mr Hammond:
I understand that for the individual regiments and battalions affected, today’s decisions are very difficult, but they have been taken in the best long-term interest of the Army.

Jason McCartney (Colne Valley) (Con):
As a former RAF officer, may I associate myself with the Defence Secretary’s comments about our air crew in RAF Lossiemouth? I also praise him for the sensitive and respectful way in which he has made today’s announcement—in sharp contrast to his shadow, who made shameful comments about our veterans earlier. As regards the Yorkshire Regiment, will the Secretary of State confirm that members of the 3rd Battalion serving in Afghanistan will be given a timely and accurate briefing on the future of their colleagues in the 2nd Battalion?

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Mr Hammond:
That is an excellent point, and I am glad my hon. Friend has raised it. The military chain of command will be briefing people throughout the Army. That will have started with briefings to people in the affected units at the time I stood up to make this statement.

Andrew Selous (South West Bedfordshire) (Con):
Does my right hon. Friend believe that the very welcome institution for the first time ever of an annual report to Parliament on the state of the reserves will prevent the Territorial Army from bearing the brunt of cuts in the future, as has sometimes happened in the past?

Mr Hammond:
This approach is being taken precisely to prevent the kind of disgraceful targeting of the Territorial Army that took place under the previous Government, when training was slashed in order to deal with a short-term cash problem. The long-term impact on reserve recruitment can hardly be overestimated.

Dan Byles (North Warwickshire) (Con):
With regard to the 2nd Battalion the Royal Regiment of Fusiliers, will the Secretary of State tell us what has changed from just a few years ago, when the Army was actively moving towards multi-battalion regiments as being more flexible and more efficient formations?

Mr Hammond:
The main things that changed are the fiscal crisis that we have inherited and the need to restructure our forces in the post-Afghanistan era. I say to my hon. Friend, however, that it is open for single battalion regiments to make proposals for future structural change. If they want to merge and look at changes within their divisional structures, they are absolutely free to negotiate them with other regiments and divisions and to make proposals on that basis.

Mr Marcus Jones (Nuneaton) (Con):
My constituents will welcome the news on the Gurkha units, but they will be deeply concerned about the effect on the Fusiliers and their recruitment in Warwickshire. What options has the Secretary of State explored, particularly regarding other regiments that, unlike the Fusiliers, seem to struggle with their recruitment?

Mr Hammond:
I can only repeat what I have said. The Army has conducted a methodical analysis and, looking at all the criteria set out, the decision on the 2nd Battalion the Royal Regiment of Fusiliers was the right one to make.

Andrew Percy (Brigg and Goole) (Con):
Speaking as someone whose family, like many in Yorkshire, served

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in the Green Howards, may I ask the Secretary of State to give us an assurance that he will do all he can to preserve the heritage of that battalion? Will he also assure my constituents serving in the 2nd Battalion that they will be treated equally as they move forward?

Mr Hammond:
Yes, I can certainly give my hon. Friend that assurance. Everyone in the regiment will be treated equally as we move forward, and matters about the preservation of the antecedent names are matters for the regiment.

Paul Uppal (Wolverhampton South West) (Con):
Regarding the recruitment of future reservists, may I impress on the Secretary of State that it is vital for our armed forces to talk about the important role they have, particularly in providing positive male role models for many young men? It is vital that we impress upon the British public the important work that the armed forces do abroad and domestically.

Mr Hammond:
My hon. Friend is absolutely right. We are reinforcing that point by introducing 100 additional cadet forces into state schools and academies over the next few years.

Stephen Gilbert (St Austell and Newquay) (LD):
Will my right hon. Friend make efforts to ensure that, as the reserves continue to play an important integrated role with the regular soldiers in our armed forces, we do not see two tiers emerging and that we secure parity of esteem for our reserve soldiers?

Mr Hammond:
Parity of esteem, parity of equipment, parity of kit—that is indeed the intention.

Glyn Davies (Montgomeryshire) (Con):
Along with other Welsh MPs across the House, over the review period I have been deeply concerned about the future of the Queen’s Dragoon Guards. Does the Secretary of State understand the great relief across Wales that the Queen’s Dragoon Guards, along with regimental names and cap badges, have been saved and that the strong link between Wales and the British armed forces has been preserved?

Mr Hammond:
I welcome the strong link between Wales and the British armed forces, and I am sure that those who have campaigned on the Queen’s Dragoon Guards will be greatly relieved.

Mr Deputy Speaker (Mr Nigel Evans):
I would like to thank hon. Members and the Secretary of State. In the end, everyone who wanted to contribute was able to do so.

5 July 2012 : Column 1111

Point of Order

1.49 pm

Greg Mulholland (Leeds North West) (LD):
On a point of order, Mr Deputy Speaker. During the course of the safe and sustainable review into children’s heart services in England and Wales, Health Ministers correctly said that they were unable to comment because this was a clinically led process. However, the review has now reported, so there is an urgent need for a statement because of concerns about the flaws in the decision and in order to allow shadow Health Ministers to express their views, as the review was commissioned under the last Labour Government. We have heard nothing so far from any Health Minister. May we have an assurance from you, Mr Deputy Speaker, that we will have an oral statement on the Floor of the House before we rise for the summer recess?

Mr Deputy Speaker (Mr Nigel Evans):
I cannot give that assurance. What I can say is that if a Minister from the Department of Health wishes to make a statement, the House will be notified in the usual manner, but to date I have received no such information.

Business without Debate

Supply and Appropriation (Main Estimates) Bill

Motion made, and Question put forthwith (Standing Order No. 56), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time.

Question put forthwith, That the Bill be now read the Third time.

Question agreed to.

Bill accordingly read the Third time and passed.

5 July 2012 : Column 1112

Professional Standards in the Banking Industry

1.50 pm

Ed Balls (Morley and Outwood) (Lab/Co-op):
I beg to move,

That, in the opinion of this House, the Government should commission an independent, forensic, judge-led public inquiry under the Inquiries Act 2005 into the culture and professional standards of the banking industry, to be completed within 12 months, to be paid for by the banks, and that any such inquiry should provide an interim report and recommendations, by the end of 2012, covering the lessons learnt from the scandal of manipulation of the LIBOR.

Mr Deputy Speaker (Mr Nigel Evans):
With this it will be convenient to debate the following motion:

“That, in the opinion of this House, a joint committee of the two Houses ought to be established into professional standards in the banking industry.”

Ed Balls:
I rise to open this very important debate, and to support a motion that has been tabled in my name and that of my right hon. Friend the Leader of the Opposition, and in those of the right hon. Member for Belfast North (Mr Dodds), the hon. Member for Dundee East (Stewart Hosie), the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd), and the hon. Members for Foyle (Mark Durkan), for Brighton, Pavilion (Caroline Lucas) and for North Down (Lady Hermon). Five separate parties in the House—the Democratic Unionist party, the Scottish National party, Plaid Cymru, the Social Democratic and Labour party and the Green party—have all supported the case for an independent and judge-led public inquiry.

This is a vital moment for our banking and financial services industries, for our economy, and for the reputation of this Parliament. We must today decide how to respond to the massive public anger that has erupted over the past week throughout our country, families and businesses large and small following the revelations of lying and market manipulation which have been exposed at Barclays and which we expect to spread more widely, and of the mis-selling of interest rate derivatives to thousands of small businesses. Those revelations will have also deeply dismayed and angered ordinary bank employees in London and across the country who work hard every day and do vital jobs, and who now see the reputation of their profession undermined by the shocking irresponsibility of a few. There is anger and incomprehension at the fact that traders and executives should behave in such a self-interested and duplicitous way, seemingly without any reckoning or proper punishment.

Several hon. Membersrose—

Ed Balls:
I will give way in a moment.

That sense of outrage comes on top of a deep and wide public discontent at the huge price that our economy and economies around the world have paid as a result of the gross banking irresponsibility in the run-up to the financial crisis. That price can be measured in billions of pounds in loans gone and debts written off, but it is also felt in the everyday lives of citizens in jobs lost, small businesses gone bankrupt, and living standards

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undermined. With our economy now back in recession and bank lending to small businesses still falling, it is being felt now—last week, this week, and in the months to come. Trust in our banks is in tatters.

Several hon. Membersrose—

Ed Balls:
I will give way in a moment, when I have finished my introductory remarks.

The public rightly want answers and actions to prevent this from happening again, but above all they want reassurance that it is not one law for the many, one price paid by the many, and another, softer option for the rich and powerful.

Several hon. Membersrose—

Ed Balls:
I will give way in a moment.

We need a change not just in laws and practices, but in ethics, culture and responsibility. We need a lasting consensus for the future. Today, in the House, we have a very serious task ahead of us: we have to decide how best that change can be achieved. The way in which we respond will have long-term consequences for the future of banking, for our economy, and also—I say this to Members on both sides of the House—for public trust in this Parliament. We all have a responsibility to get this right together.

James Morris (Halesowen and Rowley Regis) (Con):
Will the right hon. Gentleman cast his mind back to the time when he was the City Minister in the last Government? What action did he take to review the regulatory situation, and did he take any action against the manipulation of LIBOR?

Ed Balls:
As the hon. Gentleman will know—because I said this yesterday—at no point at any time when I was an adviser or City Minister was it suggested to me by the Financial Services Authority, the Treasury, the Bank of England, or anyone in the House that there was any reason to doubt the integrity of the LIBOR market. The facts came to light only subsequently, and they are now being properly investigated. I hope that that serves as a full answer to the hon. Gentleman.

Nadhim Zahawi (Stratford-on-Avon) (Con):
This is a very important point, which goes to the heart of the issue of trust. Can the right hon. Gentleman confirm that, as far as he knows, no other Minister at either No. 10 or the Treasury spoke to the Bank of England about LIBOR during his time in office?

Ed Balls:
Here we go again, Mr Deputy Speaker. The reason we advocate an open public inquiry, judge-led, is precisely in order to get to the bottom of all these things.

Given the direction in which the debate is now going, before I set out the arguments before us today let me just say this to the Chancellor of the Exchequer. The cheap, partisan and desperate way in which he and his aides have conducted themselves in recent days does him no good; it demeans the office that he holds; and, most important, it makes it harder for us to achieve the lasting consensus that we need.

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I have to say that what we have seen in the last few days makes the case more eloquently than any speech that I could deliver, or any speech that any of us could deliver, for an independent, arm’s length public inquiry to elevate this debate above the deeply partisan tone set by the Chancellor and his colleagues. As for the false personal accusations that the Chancellor has made against me, not on the basis of any evidence but purely in the hope of political advantage, he said yesterday—[Interruption.] Members should listen to this.

The Chancellor said yesterday that I was “clearly involved” in communicating with the Bank of England and Barclays in October 2008 concerning the LIBOR market, a claim that his aides repeat. He made that utterly baseless accusation before any proper investigation, before any witnesses had been called and before any papers had been examined. He did not say it to an inquiry; he said it yesterday to The Spectator. If he has any evidence, he should produce it now, in the House. [Interruption.] If he will not—[Interruption.]

Mr Deputy Speaker:
Order. Please can we calm the debate? This is an important debate, and we do not need shouting across the Chamber in that fashion. [Interruption.] Order! Do you understand? Stop it. Let us take the heat out of the debate now, and stop the calling.

Ed Balls:
The allegation made about me yesterday in The Spectator is utterly untrue. At no point did I have any communication, directly or indirectly, with Mr Paul Tucker, at any time when I was an adviser, a Minister, or subsequently a Cabinet Minister, and I had no discussion at any time with anyone about the LIBOR market and its operation. [Interruption.] It is not for me to provide the proof; it is for the Chancellor to prove his allegation. If he has any evidence, he should produce it now, in the House. I will take an intervention now. [Interruption.] If the Chancellor will not provide the evidence now, he needs to stand up at the Dispatch Box now, and withdraw this utterly false allegation.

The Chancellor of the Exchequer (Mr George Osborne):
In the last 48 hours we have discovered two things: first, there is the report commissioned by UBS that Baroness Vadera now says she saw and commented upon; secondly, we have learned from the personal account of Bob Diamond’s telephone call with Paul Tucker that senior figures in Whitehall contacted Paul Tucker, and Bob Diamond said in his evidence to the Treasury Committee that they were Ministers. In the last 24 hours, we have had the shadow Chancellor say it might have been Treasury Ministers at the time, and we have had the previous Chancellor of the Exchequer say they definitely were not from the Treasury, but maybe from elsewhere in Government. Will the shadow Chancellor explain what Labour’s involvement was? Who were the Ministers? Who had the conversation? Who were the senior figures? Let him answer for his time in office.

Ed Balls:
The House and the public will judge the integrity of a Chancellor who cannot defend here what he whispers to The Spectator magazine. He has no evidence, and he knows it, because what he said is not true, and he knew that too.

Let me read out what he said to The Spectator. He said:

“They were clearly involved…That’s Ed Balls, by the way.”

That is the allegation; it is utterly false and untrue.

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I say again to the Chancellor that he should either present the evidence or withdraw the allegation about me right now. I have to say that the sight of a Chancellor who says one thing to the press but cannot defend himself in Parliament is embarrassing to that office.

Mr Osborne:
The former chief executive of Barclays said this yesterday to the Treasury Committee. He said what Paul Tucker

“was trying to tell me was, ‘Bob, there are Ministers in Whitehall who are hearing that Barclays is always high. That could lead to the impression that you are not funding yourself.’”

Does the shadow Chancellor know who those Ministers were?

Ed Balls:
I am very sorry, but we cannot have a Chancellor of the Exchequer who behaves in this way. He made an utterly personal allegation about me. He said:

“They were clearly involved…That’s Ed Balls, by the way.”

I have said unequivocally that that is utterly untrue. The Chancellor should either provide the evidence or withdraw the allegation. We should not have to wait for an inquiry for the Chancellor to withdraw a false allegation made about me, which he has no evidence for, and which he knows is utterly untrue.

I have to say that the Chancellor’s behaviour will appal the public, who, rightly in my view, are unpersuaded that any of us—any of this generation of politicians, regulators and bankers—are currently rising to the challenge and putting right the wrongs for which they are paying a heavy price.

Several hon. Membersrose—

Ed Balls:
I am not going to give way to the Chancellor’s aides until the Chancellor himself puts up or shuts up, and he cannot, because he knows there is no evidence: the allegation is untrue and he made it anyway because that is the integrity of the man.

Andrew Bridgen (North West Leicestershire) (Con)rose—

Ed Balls:
I will not give way now.

The reality is that we must all admit that regulation should have been tougher, including those who argued for less regulation. I say to the Chancellor that I will await, and press for, his withdrawal and apology day after day until I get it. All of us on both sides of this House need to show a little more humility, including the Chancellor—and the Prime Minister, too.

I am more than willing to attend an inquiry and answer any questions. What the public will ask about this Chancellor and this Prime Minister as they listen to this debate is, why are they not prepared to do the same in the public interest? That is the question they will ask.

Let me turn to the motion. The Government have three declared objections to a judicial public inquiry: scope, speed and form. Let me take each in turn. First, on scope, the Prime Minister and the Chancellor argue that we have already had the Vickers commission on banking, which reported last September, and now the Financial Services Authority will report. They say we do not need to have a more broad-based inquiry that, in their view, will lead to more uncertainty. “Get on with it,” they say, and it is right that there are a number of

5 July 2012 : Column 1116

important questions that need to be asked about the LIBOR scandal, not least why, when this market was investigated by the British Bankers Association in 2008, the then chair, now Lord Stephen Green, gave it a clean bill of health. We need to look at these issues, including, if the Treasury and the BBA urged tougher regulation when they discussed LIBOR on 5 March 2012, when the Financial Secretary was asked the next day in Committee whether we needed a change in law, why did he say no? These are important questions that need to be addressed.

The issues go much wider, however. A member of the Vickers commission said earlier this week that

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

That is what a Vickers commission member says.

Gordon Banks (Ochil and South Perthshire) (Lab):
Given all the banking scandals to which my right hon. Friend has alluded, how will the banks be able to play a fundamental and trustworthy role in the economic growth and future of this country without our having an independent judge-led inquiry?

Ed Balls:
That is a very important point. Banks play a very important role in our economy. Hundreds of thousands of jobs depend on our retail and global wholesale banking industry. It would be very dangerous to take risks with that industry and those jobs. It makes no sense to throw the baby out with the bathwater. I say to the Chancellor, and those who use the importance of our financial services industry as an argument against a broad-based inquiry, that they badly under-estimate both public anger and what needs to be done, because banking is a profession which above all needs trust, and that trust is currently badly undermined.

When the public hear that, I do not think they believe him. That is the problem. In the light of recent events, when they find out that the Government have decided, against the recommendation of Sir John Vickers, to allow complex derivatives inside the retail bank ring fence, they think, “Well, could this allow the appalling mis-selling to happen again?”

Let me quote to the House the comments of Mr Martin Wolf, a member of the Vickers commission, who was asked last week whether he agreed that any sort of derivative should not be sold to a retail bank. He was asked whether they should be kept separate, and he replied:

“We wanted to separate them completely and the Government has gone back on that and we think that is really quite dangerous. It leads to the very serious risk of mis-selling which we have seen has been a constant theme of the relationship between retail banks and relatively inexperienced, uninformed clients.”

That is right, and that is why a LIBOR inquiry is not enough. We need to look at these Vickers issues as well.

Penny Mordaunt (Portsmouth North) (Con):
The shadow Chancellor may know that a constituent of mine is a former Labour Treasury Minister whom I unseated

5 July 2012 : Column 1117

at the last election. For her sake, if not for mine, will he tell us who were the Ministers Bob Diamond was referring to?

Ed Balls:
We return to the smears of the Chancellor and his aides. We have had answers to that question from the City Minister at the time, the Chancellor and Shriti Vadera. I have asked the Chancellor to provide the evidence or withdraw and apologise, and he cannot. That says quite a lot about the Treasury team that he leads.

It is our view that a comprehensive review of the whole culture of banking must start with the conduct of bankers and traders, look at the institutions in which they operate, and cascade outwards into the rules, corporate governance, industry approaches and regulatory and legal frameworks in which banks have done business in past decades. There are many important, searching questions that we need to answer, and the only way to answer them—I have them here, but for reasons of time I will not go through them all—is through the broad-based inquiry that we need, not a narrow, LIBOR-based inquiry.

Elizabeth Truss (South West Norfolk) (Con):
Does the right hon. Gentleman think it was a mistake to set up the tripartite regulatory structure, in which everyone and no one seems to have been responsible? He does not seem to know which part of his Government was doing what.

Ed Balls:
When the Conservatives gave reasons in Parliament at the time for opposing the establishment of the new regulator, did they talk about the tripartite system? The shadow Chief Secretary to the Treasury, who was the lead on this issue at the time, said in 1999:

“Our concerns about the Bill may be said to fall into two general areas. The first is the very wide power still vested in the FSA and the danger that any concentrated executive power can lead to abuse.”

We know all about that from this Chancellor and his reforms.

“The second is the danger of over-regulation, with consequential damage to the United Kingdom’s position.” —[Official Report, 28 June 1999; Vol.334, c. 44.]

Perhaps the hon. Member for South West Norfolk (Elizabeth Truss) needs to go back and read the Hansard of the time.

The Government’s second objection to a full judicial inquiry is one of speed. As the Prime Minister said on Monday—

Andrew Bridgen:
Will the right hon. Gentleman give way?

Ed Balls:
I need to make some progress. This is a very important issue and others want to speak. I have taken a number of interventions. I have to say, I am still waiting for the intervention that I want—the apology from the Chancellor. [Interruption.]

The Government’s second objection to a full judicial inquiry is one of speed. On Monday, the Prime Minister said that we need to just get on with it. We agree. We need to move ahead as quickly as possible. That is why the Leader of the Opposition has proposed a two-stage process for a judge-led review. Stage one: an immediate review into LIBOR and derivatives. Start now, conclude

5 July 2012 : Column 1118

by Christmas, establish it immediately, meet through the summer—five days a week, if necessary—and without any need to stop for the summer recess. Then, there is a second stage, to be finished within 12 months from now, looking into the wider issues of banking practice that we have identified. That is a timetable that past inquiries have shown can be delivered.

Several hon. Membersrose—

Ed Balls:
This is an important point, and Members should listen.

Andrew Bridgen rose—

Ed Balls:
I am not going to take an intervention from that hon. Gentleman.

While we need speed, we also need the inquiry to be thorough and genuinely cathartic, and to succeed in rebuilding public trust and confidence, or else we risk being back here again.

The third argument the Government employ is one of form: that, compared to a full judicial inquiry, a parliamentary inquiry can do the job just as well in less time, and with less cost. We do not believe that that argument holds water, but more important, it does not take on board the scale of the task ahead.

Anna Soubry (Broxtowe) (Con)rose—

Ed Balls:
The hon. Lady should listen before she concludes whether to support our motion later on.

First, all the recent experience of the phone hacking scandal suggests that only a judge-led inquiry, under the Inquiries Act 2005—[Interruption.] Every time that Members interrupt me mid-sentence, I just conclude that I am not going to take their interventions. Why do you not listen and have some respect for this House and our debates? Have some respect for the arguments being made.

The Attorney-General (Mr Dominic Grieve):
Will the right hon. Gentleman give way?

Ed Balls:
I will make the point and then take the intervention.

First, all the recent experience of the phone hacking scandal—[Interruption.] The Chancellor should listen—unless he is composing his apology. We should consider the recent experience of the phone hacking scandal and all the deliberations we see in, for example, the very important report on the details and reality of Select Committees and coercive powers, entitled “Select Committees and Coercive Powers—Clarity or Confusion?”, from the Constitution Society. All the experience shows that only a judge-led inquiry can have the necessary power to compel witnesses to attend and ensure the production—

Andrew Bridgen:
Will the right hon. Gentleman give way?

Ed Balls:
I am not going to take an intervention from the hon. Gentleman, who interrupts every sentence. It is not good for the House or this debate, and I suggest that he stay in his seat.

I will say the sentence again, Mr Deputy Speaker, if that is okay with you—[Interruption.]

5 July 2012 : Column 1119

Mr Deputy Speaker (Mr Nigel Evans):
Order. Just to help the debate, Mr Bridgen, save your energy. Mr Balls is not going to allow you to intervene, so please, no more while Mr Balls is speaking, Mr Bridgen.

The Attorney-General rose—

Ed Balls:
I will take the right hon. and learned Gentleman’s intervention, but I will make the point on powers first. I will do this in a proper way, Mr Deputy Speaker.

All the recent experience is that only a judge-led inquiry can have the necessary power to compel witnesses to attend and to ensure the production of documents, with powers of enforcement that make it a criminal offence to fail to comply—under section 35 of the relevant legislation, the penalty is 51 weeks or a £1,000 fine—or High Court powers of enforcement for contempt of court, under section 36. The problem is that Select Committees, in the modern legal world, just do not have the same powers in law to force witnesses to attend or to give evidence on oath, and nor do they have the necessary sanctions. The last time Parliament—

Damian Collins (Folkestone and Hythe) (Con):
Will the right hon. Gentleman give way?

Ed Balls:
No. I will take the intervention from the Attorney-General next, thank you.

The last time Parliament imposed a fine for contempt of court was before the great fire of London in 1666. The last time a member of the public was imprisoned for contempt was before the Boer war. Select Committees do not have these powers.

The Attorney-General:
I am very grateful to the right hon. Gentleman for giving way. I intervene on one key point. It is clear from what he says that he desires that the preliminary part of his judicially led inquiry should produce recommendations on the lessons to be learned from the scandal of the manipulation of LIBOR as quickly as possible and by the end of the year. The question whether there is to be a criminal investigation is not in my hands or, indeed, those of anybody in this House. The idea that such an inquiry can be run in tandem with a criminal investigation is, I am afraid, impossible.

Ed Balls:
We know that this proposal was cobbled together over the course of Monday. I wonder whether the Prime Minister and the Chancellor had the opportunity to consult the Attorney-General before they made this proposal. If we cannot have a judge-led inquiry until the criminal prosecution has been done, how can we possibly have a parliamentary inquiry? Exactly the same argument was made—

The Attorney-Generalrose—

Ed Balls:
In a second. I am still waiting for the Chancellor to make his intervention.

The second point is that exactly the same argument was made in the case of phone hacking—that we could not have the inquiry until the criminal prosecutions had been done. But that is not what has happened with the Leveson report.

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Chris Bryant (Rhondda) (Lab):
Is not the whole point about having a judge-led inquiry that judges are perfectly used to circumventing—making sure they go round the corners, so that they do not prejudice any criminal investigation? For that matter, all the serious evidence that has appeared in the public domain from phone hacking has come from the civil courts, through the Norwich pharmacal process, or from the judge requiring a statement of truth from all those providing evidence.

Ed Balls:
My hon. Friend is right, and I fear that the Attorney-General has just completely destroyed the basis of his own Government’s parliamentary inquiry. We know from experience that when the subject of a public inquiry overlaps with the prospect of criminal charges and trials, only a judge has the legal skills and credibility to conduct that inquiry without crossing the line of what is acceptable. That is what Lord Leveson showed and that is what parliamentary inquiries have been unable to do on phone hacking.

The Attorney-General:
I am grateful to the right hon. Gentleman for giving way. So far as the Leveson inquiry is concerned, that question was recognised at the time that it was set up. It is for that reason that it was split in two. Lord Justice Leveson has been at great pains to avoid interfering with the process, but the process contemplated in the motion tabled by the right hon. Gentleman and others envisages, as I read it, that the part of the inquiry dealing with the scandal of manipulation should take place at once. I have made the point as to why I think that that is extremely difficult.

The right hon. Gentleman then raised a second point, which was that that argument could also apply to referring the matter to a Joint Committee of both Houses. If I may say so, he is correct in that. It could present such a difficulty, but I note that there is no prescriptive timetable laid down for the working of the Joint Committee and I have no doubt—[Interruption.] I am sure that despite parliamentary privilege the Joint Committee will have to adapt to any criminal investigation or inquiry that takes place. However, that makes no difference to the fact that, as drafted, the right hon. Gentleman’s motion appears to me to have a fundamental problem associated with it.

Ed Balls:
I hear the right hon. and learned Gentleman’s points and I only wish the Prime Minister would talk to his own legal adviser. As far as I can see, the Attorney-General has entirely torpedoed the inquiry, which we were told yesterday would conclude by Christmas. If he is saying that the inquiry can take longer in order to deal with the issue of criminal charges, what does that make of the Prime Minister’s argument that the only reason for doing it this way was to do it faster? It is utterly incoherent. I am not saying in any way that the Attorney-General is being incoherent—it is just the Chancellor and the Prime Minister who have completely lost their grip on this whole process.

Mr Pat McFadden (Wolverhampton South East) (Lab):
Does my right hon. Friend agree that the legal advice that we seem to have heard on the hoof just now casts a whole new light on the debate? The Government’s argument all week for a Joint Committee of both Houses has been that it could proceed with its work quickly, whereas we

5 July 2012 : Column 1121

have just heard an argument suggesting that precisely the same objections as the Attorney-General made to our proposals could be made to the Government’s proposals.

Ed Balls:
It is no surprise that the Chancellor has gone completely white as he sits on the Front Bench. Let us be honest: he did not consult the Culture Secretary on a tax on churches; he did not consult the Transport Secretary on a U-turn on fuel; and he did not consult the Law Officers on the inquiry—

The Attorney-General rose—

Hon. Members:
More!

Ed Balls:
Yes, let us have more—[Interruption.]

Mr Deputy Speaker (Mr Nigel Evans):
Order.

The Attorney-General:
I am sorry that the right hon. Gentleman is being so obtuse about what seems to me to be a fairly clear issue. The motion he has tabled is, for the reasons I have given to him, unlikely to be feasible if there is a criminal investigation. He then conflated that with the suggestion that there could not be any kind of inquiry by a Joint Committee of both Houses. That is simply not the case. Of course there can be, provided that it bears in mind the need to respect comity with any other court or proceedings that might be taking place. It is the structure that the—

Mr Deputy Speaker:
Order. I call Mr Balls.

Ed Balls:
I have to say that there would be no point taking an intervention from the part-time Chancellor on this point, as he clearly does not have a clue what is going on. The confusion is that the timetable that we have set down for our first-stage judicial inquiry is exactly the same as that which the Government announced for their parliamentary inquiry. If it is too short for one, how can it be the right length for the other? More than that, my argument was that when we are discussing complex issues that require fine legal judgment, the idea that judges would make that fine legal judgment in a worse way than a parliamentary Committee is nonsensical. The right hon. and learned Gentleman has done a very great service to this House. I had four objections to the form of the inquiry, but it has been torpedoed while I am only halfway through.

I have a feeling that the Attorney-General’s interventions might have completely killed off the parliamentary inquiry, but there are two more reasons why it is a bad idea.

Simon Hughes (Bermondsey and Old Southwark) (LD)rose—

Mr William Cash (Stone) (Con)rose—

Ed Balls:
No, I will not give way—[Interruption.] Look—[Interruption.]

Mr Deputy Speaker (Mr Nigel Evans):
Order. I point out that this is a time-limited debate and a substantial number of Members wish to contribute. All the noise

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and the number of interventions will mean that several Members will be disappointed. May we please hear Ed Balls in silence?

Ed Balls:
I will give way to the hon. Member for Stone (Mr Cash), who is not an hon. Gentleman who is used to getting up to bail out the Chancellor. Perhaps this time he can.

Mr Cash:
I am extremely grateful to the shadow Chancellor for giving way. On the question of the alternatives of a Select Committee and a judicial inquiry, it is perfectly clear that we can make any necessary adjustments through our Standing Orders on such issues as taking evidence on oath, for example. I will seek to explain that in more detail if I get the opportunity to make a speech.

Ed Balls:
The hon. Gentleman has proposed that a QC could advise the Committee; perhaps he will make that proposal later. Those important points take us down the road towards the judicial inquiry. The problem is—and this is my third objection—that experience shows that only a judge-led inquiry can ensure the necessary forensic cross-examination of witnesses, prevent witnesses from avoiding answering key questions that are important for establishing the truth and, in particular, avoid blanket refusals to answer questions on grounds of legal advice. I would be happy to take an intervention from the Attorney-General on this point, because we have seen it happen in parliamentary hearings.

The argument is that a witness before a parliamentary inquiry can say on legal advice that they will not answer a question, but in a judge-led inquiry the judge has the ability to explain to the witness why answering the question in the particular form set by him according to his legal judgment will not cross the line. Unless a judge is properly testing the boundary between self-incrimination and the answers that must be given for a proper inquiry, we cannot make progress. That would be doubly the case with the prospect of criminal investigations, which might take some years down the track. On the question of witnesses not incriminating themselves, it seems to me that the evidence shows—perhaps the Attorney-General will correct me—that it is impossible for a parliamentary inquiry to call any witness who might be implicated in the LIBOR scandal without the witness saying, “On legal advice, I will say nothing.” The inquiry cannot work like that. Only a judge can sort this out.

Damian Collins:
Does the shadow Chancellor accept that a Select Committee can ask a witness to release information covered by client-attorney privilege, as the Select Committee on Culture, Media and Sport did in the phone hacking inquiry? That information cannot be requested by a public inquiry because it is covered by the same remit as a civil court. A parliamentary inquiry can request and receive information that a public inquiry cannot and, in the case of the phone hacking inquiry, that led to the production of the most significant information of the entire inquiry.

Ed Balls:
All my experience—and there are many Members on both sides of the House who have more detailed experience than I have—is that Select Committees find it much harder than a judge-led inquiry to secure

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the release of necessary and essential documents and, more importantly, to find out which documents they should ask for in the first place.

Finally, and above all in our view—and I note that the Attorney-General did not correct me on the calling of witnesses, but perhaps he will advise the Chancellor for his speech—only a judge-led inquiry can truly persuade the public that the inquiry is properly independent and objective and, given the Chancellor’s behaviour, non-partisan.

Mr Dave Watts (St Helens North) (Lab):
Is it not clear that the Government, stacked with bankers and payrolled by the bankers, are frightened of a judge-led inquiry because they want to cover up the scandal?

Ed Balls:
My hon. Friend makes his point in his own particular way. I was saying that the inquiry needed to be independent, objective and non-partisan, so I understand his concerns. I would probably also understand his bafflement about why the Chancellor and Prime Minister seem to be unwilling to appear before a public inquiry looking at wider issues of culture.

Simon Hughes:
My constituents—like, I think, the right hon. Gentleman’s—want this mess in the banking industry to be cleared up as quickly as possible. They want laws to be changed—and there are two chances this year—they want people to be taken to court and, if necessary, sent to prison; and they want it now, not some time in future. Why can we not get on with it, rather than delay the action that has been delayed for too long?

Ed Balls:
I am afraid that the right hon. Gentleman needs to have a word with the Attorney-General, because we just heard precisely why the right hon. and learned Gentleman believes we cannot get on with these issues.

The Attorney-General:
The right hon. Gentleman has not answered the question I put to him earlier. He says he wishes to have a judge-led inquiry, and he gives some perfectly good reasons—[Interruption.] These are matters of debate. He has been quite unable to explain how, in the light of the fact that at the same time there is a desire for a criminal investigation, those two can be reconciled. He has come to the Dispatch Box to criticise the Government for their approach, so that is a question he ought to be capable of answering, or receiving legal advice on how to answer it. It is a real problem, not an artificial or concocted one, and he has not provided that answer at all.

Ed Balls:
It is a pity not only that the right hon. and learned Gentleman was not consulted before the inquiry was announced but that he is not leading for the Government today instead of the part-time Chancellor, as that would probably be a more enlightening debate. Let me repeat exactly what I said in my speech. When the subject—[Interruption.] I am going to answer the question, but it does not help if the Treasury Whip shouts from a sedentary position. If he wants to join the Chancellor and withdraw his allegations he can do so.

Let me repeat my answer to the question. When the subject of the public inquiry overlaps with the prospect of criminal charges and trials, it is our judgment that

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only a judge, as we have seen in the Leveson inquiry, has the legal skills and credibility to conduct that wider inquiry without crossing the acceptable line. A parliamentary Committee will never be able to do so. The reality is that there will be stalemate—witnesses not answering questions, documents not revealed—and we will not make progress. We adopted the Government’s timetable for the first stage of the inquiry, because we thought they had thought it through, but it turns out that they had not done so.

Anna Soubry:
Will the right hon. Gentleman give way?

Ed Balls:
I will give way to the hon. Lady in a moment—[Interruption.] There is no need for any favours like that to get me to—[Laughter.]

Let me summarise the case for a public inquiry as simply as I can by quoting from a higher authority. Let me quote from a call for an independent public inquiry on banking:

“Is not the truth that in Britain people are losing their homes, small businesses are closing, unemployment is rising and manufacturing output is falling again and that, by refusing to hold a public inquiry, the Prime Minister is yet again demonstrating that he cannot provide the change people want?”—[Official Report, 5 November 2008; Vol. 482, c. 247.]

I could not have put it better myself. But those are not my words. They are directly from the right hon. Member for Witney—Cameron direct. I checked this morning and the quote is still on the Conservative party website, under the headline, “Why won’t the Prime Minister hold a public enquiry?” It even has a photo of the current Prime Minister there for us all to see. He said we need an independent inquiry. That was on 5 November 2008. How things have changed, for all of us. I know that the Prime Minister makes such a virtue of consistency, so I hope he will join us in the Lobby tonight for another Treasury U-turn—they just keep coming for this Chancellor.

Let me turn to the votes. I have set out three concerns—scope, speed and form—which we are told are the reasons the Government object to our proposal for an independent judge-led inquiry. I have explained why we do not believe that any of these arguments stack up—to be honest, the Attorney-General has been very helpful in this regard. We urge hon. Members to think hard. I said I would take an intervention from the hon. Member for Broxtowe (Anna Soubry), so I will take that first.

Anna Soubry:
I am grateful to the shadow Chancellor, a fine Nottingham boy, and I am enjoying his contribution. We all agree that this is an outrageous scandal and we need to get to the bottom of it, but does he not also agree that out there in the real world people want to hear a little acceptance of responsibility and a little contrition from him, because he was a member of the Government when this scandal happened and it was on his watch?

Ed Balls:
Despite trying to intervene, the hon. Lady has been listening to my speech and so will have heard me say that mistakes were made and humility is needed from Members on both sides of the House. As a former barrister, she will also know, as will many Members on both sides of the House who have worked in the law, accounting or financial services, that the highest standards

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of integrity not only are necessary, but need to be seen if they are to command public confidence. That is the argument for our inquiry. I ask her and hon. Members on both sides of the House to think hard and support our motion today to put the banking industry on a sound footing.

We hope to win the argument this afternoon. We aim to persuade hon. Members to vote with us and support our motion. We recognise that the Government have a majority and intend to whip the vote tonight. If our motion is unsuccessful and the Government railroad through a parliamentary inquiry—they may be reconsidering now—we will continue to make the case for a full judicial inquiry. If further banking scandals emerge, as I fear they will, people will look back at this moment and conclude that the Government failed to grasp the opportunity.

Gordon Banks:
Does my right hon. Friend agree that, perhaps, the activity and findings of the Leveson commission are the grounds for the Government’s reluctance to join the Opposition in the Lobby this afternoon to vote for a full, judge-led, public inquiry?

Ed Balls:
I do not know the answer to my hon. Friend’s question; I do know that the open process of the Leveson inquiry has been challenging to Members on both sides of the House—but rightly so. If questions are raised, in an open judicial inquiry, about past regulatory decisions, that is right and proper; if they are raised about decisions made in the mid-1980s, that is right and proper; and if questions are raised about the financing of political parties and where donations comes from, that is right and proper as well.

We should have no fear of answering those questions, but, from what we have heard from Government Front Benchers, we know that the Government have no intention of holding such a full, open, public inquiry; they want an inquiry on the shortest timetable and in the narrowest way. The Attorney-General has told us why one cannot be held on a timetable for completion by Christmas, but let me remind him what the Prime Minister said on Monday:

“The Vickers Bill—the banking Bill—will be introduced in the House of Commons in January, and I want an inquiry to be completed by then so that we can take the best of that inquiry and put it in the Bill.”—[Official Report, 2 July 2012; Vol. 547, c. 590.]

But if that inquiry cannot do the job, how will we end up with the best? We will end up with the worst of all worlds.

The Attorney-Generalrose—

Ed Balls:
I will happily give way again.

The Attorney-General:
It would help if the right hon. Gentleman listened, rather than getting carried away with his own rhetoric. There is nothing to prevent this House, if it wishes, from setting up a joint inquiry of both Houses into—[Interruption.]The “banking industry” is the way it was described, and that is what is in the motion—[Interruption.] Yes, to incorporate LIBOR—I make that quite clear.